Futures point to $1 400 for gold

Business News / 5 March 2014, 08:00am

Bloomberg

Debarati Roy New York

Gold traders are setting their sights on $1 400 an ounce, a price not reached since September last year, as the worst stand-off between the West and Russia since the end of the Cold War increases demand for the metal as a haven.

The most traded bullion option on New York’s Comex on Monday was a call giving owners the right to buy at $1 400 by April, with an estimated 1 972 lots changing hands. That compares with an average volume of 314 in the past month. The second most popular bet was a call giving the right to buy at $1 400 by June, with almost 1 000 contracts traded.

Investors are once again flocking to the precious metal, leaving prices poised for the biggest quarterly gain since 2007. Russia’s growing military presence in Ukraine is the latest sign of global turmoil fuelling the rally after slowing US economic growth and slumps in emerging market currencies.

Fund managers are the most bullish on gold in 14 months. Asset managers boosted their net long positions in gold by 25 percent to 113 911 contracts in the week to February 25, the highest since December 2012, US Commodity Futures Trading Commission data show.

“Worries about a possible conflict are very constructive for gold, and we are seeing momentum traders come in,” Prudential Financial market strategist Quincy Krosby said. “The mixed economic numbers out of the US and concerns about slowdown in other parts of the world have boosted demand for a safe haven asset.”

On Monday gold futures for April delivery gained as much as 2.6 percent to $1 355 on Comex in New York, the highest level since October last year.

The April $1 400 call surged 240 percent on the day to $5.10.

The spot metal fixed at $1 339.50 in London yesterday morning, down $10 from Monday’s afternoon fix.

Bullion has jumped 12 percent this year on the Standard & Poor’s GSCI spot index of 24 commodities, which has climbed 4.4 percent.

Holdings in gold-backed exchange-traded products rose 6.9 tons to 1 746 tons last month, the first monthly gain since December 2012. Last year, gold assets in exchange-traded products dropped by 33 percent, wiping $73.4 billion (R793bn) from the value of the funds.

From an all-time high of $1 923.70 in September 2011, gold plunged into a bear market in April last year as some investors lost faith in the metal as a store of value amid an equity rally and muted inflation. Prices also fell as the Federal Reserve prepared to slow the pace of monetary stimulus. The US central bank cut monthly bond purchases by $10bn in December and in January, leaving purchases at $65bn.

Fed chairwoman Janet Yellen said last week that the central bank was “open to reconsidering” the pace of cutbacks in asset purchases if the economy weakened. Policymakers next meet on March 18 and 19.

“We saw a classic risk-off day [on Monday], with money moving towards all safe haven assets,” Michael Gayed, the chief investment strategist at New York-based Pension Partners, said. “Once the panic subsides, we may see gold become a bit vulnerable and lose some ground.”

Analysts are split on the outlook for prices. Last month Goldman Sachs reiterated its forecast for the metal to reach $1 050 by the end of the year and Westpac Banking sees bullion dropping to $1 011 in December. But UBS said on February 19 that the commodity had “started to shed its stigma” and increased its 2014 forecast to $1 300 from $1 200.

“The fundamentals are very supportive, and gold looks good technically as well,” Bill O’Neill, a partner at Logic Advisors in New Jersey, said.

“If the market is able to hold on to its gains in the next few sessions, we could rise to $1 400.” – Bloomberg